Monday, July 25, 2011

Finance and Management -16

In the last blog, we discussed the Cash Ratio and some of its utility and limitations. From this blog, we take a bit of a deviation on the financial analysis front and understand some of the various terminologies that are used in the financial world. We would build on these definitions to get a better understanding of the financial world and its implications to management as we go ahead.

We have been talking about the term "Share Capital" for quite some time let’s take a closer look at this term in the coming few blogs. The Share capital section contains information about the kinds of shares, their par value, and the number of shares authorized and issued.

The Capital Stock of a company is divided into a number of units called "shares of stock", or simply "shares". A person owning a share in a company gets a "share certificate" to evidence this. A typical share certificate would have on it the kind of the share, number of the shares, as well as their distinctive share serial numbers. These shares also have a company secretary’s signature and bear the company's seal on it.

Now this set up of share certificate is fine if we have a single owner of the shares, what if the owner of these shares wants to sell them - This can be done by using the transfer form. The shareholder who has sold the shares would send the share certificate along with the transfer form to the company for recording the share ownership change.

One can easily see that such a process would be time consuming one, especially if the shares are of a large company with thousands of shareholders. Even if the company can delegate the process to a certain extent, there is still an impactful delay for the share traders. The Electronic format of the shares which makes these registered changes quick would be a preferred model in such a scenario. This electronic format of the share is called the De-Materialized or demat share.

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